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Before diving into the answer to the question in the title, there is some new data to digest.

The latest from comScore shows consistency with the previous months of smartphone growth in the US.

The growth rate was 607k/wk new-to-smartphone users. This is slightly down from 654k/wk for the previous month but up significantly from 450k/wk the year before.

The penetration of smartphones reached 38.5% (non-smartphones are at 62%)

The penetration should reach 50% before September 2012 with about 1.2% being converted every month.

The following chart shows the weekly add rate with a three-period moving average:

This chart is important in that it should first show signs of inflection in growth. That does not seem to be happening yet.

The installed base by platforms is shown below:

Android is estimated to have grown to 41.7 million users in the US, adding 2.5 million users in the last month. Android is adding half of Microsoft’s entire US mobile base every month.

RIM BlackBerry lost one million users in October. RIM’s slide has accelerated again with over 3.7 million leaving the platform in the last six month. With 15.5 million subscribers, RIM has fewer users in the US today than it did in late 2009.

iPhone gained 1.34 million. Installed share increased slightly to 28% from 27.4% the previous month. There are now over 25 million iPhone users (above age 13) in the US.

Windows Mobile/Phone had no perceptible change (-34k) indicating perhaps that the losses in Windows Mobile are being erased by gains in Windows Phone. Microsoft’s platform stopped losing significant users six months ago. Whereas the bleeding has been stopped, overall number of users remains at a rather poor 5 million or 5.4% share.

“Other” which includes Symbian and WebOS lost another 184k users to reach only 2.7 million users.

There are still 144 million smartphone non-consumers.

Android and iPhone now make up nearly three quarters of all smartphone ownership in the US. That’s a total of 67 million users. With no sign of slowing, the chances are that there are at least 100 million users still remaining to convert. Sounds like an attractive target. But that target is shrinking fast. The rates of adoption signal saturation of most likely buyers will happen toward the end of next year.

At least 25 million new Android users will be gained and at least 10 million new iPhone users will be created in the next 12 months. That’s 35% of remaining non-consumption. Assuming some acceleration, it’s not hard to see 50% being claimed by the two entrenched incumbents.

This leads to an interesting positioning question. Is Windows Phone destined to compete with consumption or non-consumption? If traction is not forthcoming in the next 12 months, that leaves a very difficult last 50 million available as non-consumers. They are more difficult as they will be late adopters and perhaps more price sensitive and less motivated by features.

Windows Phone still has quite a bit of opportunity outside the US, but in the US (and in Europe which is not much different) the competition will increasingly be with rival incumbencies not with non-consumption. As the custodians of the Windows franchise, Microsoft should be well aware of the inherent difficulties with competing with installed platforms.

First bullet – “there were 607 thousand … In October”. Is this correct? Doesn’t seem to fit with the rest of the data.

http://www.asymco.com Horace Dediu

Yes, edit needed: 607k/wk.

Canucker

From what I’ve read Windows Phone 7.5 Mango is a significant improvement but there has been deafening silence from the public. The first Nokia Windows Phones did not blow people away. What is left? Bundling with Xbox360? The lack of traction is significant. Even RIM is still gaining low end subs in developing markets. Microsoft is making money, but not at a sustainable rate (and not from their own OS).

http://www.asymco.com Horace Dediu

All testimony points to Windows Phone being significantly “better” than Android. It’s also been said that Mac OS X has been significantly “better” than Windows. However, Decades seem to pass with only meager gains in share. It seems that sometimes improvements create growth and sometimes they don’t.

Tatil

Phone replacement cycle is still shorter than the cycle for computers. That may speed things up a little.

Once you have invested in software, learned how to use it, and see friends using that platform, people become reluctant to jump ship. I am not sure if Android will have the same stickiness though. First of all, existence of a large number of Blackberry and iPhone users lowers the psychological barrier to switching. It sounded crazy for most people to switch to Mac OSX when it seemed everybody they knew was using Windows. Android apps tend to be of the free variety, so users do not have worry about their investment that much, either. (Even iPhone apps are not all that pricey, compared to desktop software such as “Photoshop Elements” or “Office.”) Some vendors already customize UI of Android, so familiarity is dented somewhat already. The business model of Android and WP is fairly similar, too. All in all, a fight between Android and WP may not be as tough and slow moving as the one in the desktop OS realm.

Anonymous

I think you are being too flip here, Horace.
There was a long period where Mac was “better” than Windows — by some metrics. But, at a time when computers were really expensive, they were not better by an important metric…

Obviously things have changed on the Mac front over the past few years, and while one could argue that this is an iPod then iOS halo effect, one could also argue that it reflects Macs becoming “better” on a wider front. The price premium is not outrageous, the OS has all the features we now expect and demand (unlike the stupid days of OS8 and 9, with Mac apologists claiming that no-one needed “real” multi-tasking and VM).
Given the huge number of Windows machines that go into offices, services (eg dentists and doctors with specific SW packages), manufacturing, etc — where a different definition of “better” holds, I suspect that the fraction of Macs in the segment where individual customer choice is possible has increased substantially as OSX has got better and Mac pricing has come down,

I could see that, as phones get cheaper, and as people use them more often, they start to care more about them working better. I don’t see many people loving their android devices outside the very loud fanboy+religiously motivated crowd, which means there’s a huge crowd that (I think) would happily swing to WinPhone based on either
– it’s cheaper than iOS (which is what they really want, but they’re too dumb to do the 24 month contract arithmetic) OR
– it works better with their home PC/XBox/Work PC.

So, the question then is: is buying a phone like buying a home PC or like buying an office PC?

On the one hand, it’s an individual decision — advantage MS.
On the other hand, for the bulk, cheap, Android phones, it’s the four carriers who make the decisions — advantage Android.
Who knows how this will play out. MS, of course, knows all about selling to large customers (and making sure the competition is blocked out). But sometimes you’re just dealt a losing hand…

Roger Shepherd

I use the analogy of cars myself. Once a product (laptop, phone) is “good enough” then things other than basic function matter. [I think Horace has made this point in the past about OSs – after XP there was no real need to upgrade your PC to get an OS that worked “better”]. BMW’s and Audi’s have the same number of wheels as Hyundai’s – they get stuck in the same traffic jams etc – but those who can often buy the “better” car.

Where are phones? In some ways they’re nearly “good enough” but in others they remain poor. I’d really like to feel confident my 4S will last the whole day and I’d quite like to be able to travel for a few days without worrying about charging….. So, some way to go yet I think.

http://www.asymco.com Horace Dediu

My point is that to beat an entrenched incumbent you need to change the game. Think of trench warfare. You could try a frontal assault but they have all the advantages of being dug in. The answer turned out to be mechanized armor (not better boots.)

http://twitter.com/bumishness Chris Snyder

A lot of the problem can likely be traced back to incentives. Carriers/handset makers love Android because they can do whatever they want with it, update it when they want, add whatever software they want etc, with no contractual requirements to be had. Consumers love iOS because it’s, well, really good. WinPho has the unfortunate circumstance of not having carriers push it because of limitations, and not having consumers push it because its “not quite as good as” iOS/iPhones.

Basically, to me it looks like Microsoft tried to have their cake and eat it too with their business model here, and I just don’t see anyone going out of their way to go WinPho. Especially when there are better alternatives for everyone in the whole process.

Eduardo Pellegrino

Nielsen data is interesting because it breaks out WinMo from WinPho, which seems to indicate that over the last 3 months WinPho gained 260k subscribers and WinMo lost 240k subscribers. Interestingly this implies that the stabilization has been caused more by WinMo losing subscribers slower than by WinPho gaining subscribers faster. In the previous 9 months Nielsen’s data puts WinMo losing around 4 million subscribers.

http://www.asymco.com Horace Dediu

The 5.4% is measured assuming 100% smartphones equal 90 million (which is their claim for total smartphone users, above age 13). I track “other” to include those left over from the shares of the named platforms. This data is certainly with a margin of error but it’s valuable because it’s updated monthly and the trend is easy to track and the data is available for a significant time period.

http://ximagin.co/thecw/ The CW

Consider the fact that some of the Windows users are still using Windows Mobile. It strikes me that these users are, quite likely, not the type to give up their device until it breaks. If features mattered they’d have jumped to a new phone already. When they do need a new device (and clearly “need” is the word because, again, if they were motivated by “want” they’d have jumped to a new device by now) they probably won’t jump to the most technically advanced device. They’ll probably go for the device most like their current phone. These people are driven by comfortable sameness not the need for newness.

The idea that they’ll jump to Windows Phones seems unfounded. And if you remove them from the windows mix, you end up with a fraction of users that is almost within the noise of the rest of the data.

Noah Berlove

There is a significant installed base of ruggedized mobile computers running Windows Mobile. These devices tend to have very slow replacement cycles (devices are typically used for 3-5 years) and MS still supports the OS. Also, there is no upgrade path beyond WM 6.5 nor are there currently any significant alternatives in the market. MS also had some early success with WM phones in the enterprise, again a slower turnover market.

In either case, end users of these devices were typically not the decision maker on the purchase. I doubt there are many consumers still using WM devices.

Tatil

The plot refers to smartphones though, I doubt many of these “ruggedized mobile computers” would show up there.

Noah Berlove

MS usually had three version of WM/PocketPC: no phone support, smart phone and smartphone with touchscreeen. There was no non-phone version of WM 6.5. If you look at the devices and how they are used and marketed, they certainly meet most people’s definition of a smartphone.

That said, I don’t know how devices are counted or what the primary source is. Most of these devices probably were not sold by carriers, nor were they likely a consumer’s primary device. However, if the numbers come from activations or sales numbers from MS or the OEMs, I suspect they are counted.

http://www.informationworkshop.org Mark Hernandez

As WP7 fights for mindshare, it seems to have both a sharp edge and a dull edge on its sword.

Unlike Android, WP7 was designed “post iPhone” so it’s UX is “smooth as silk” on many levels and very well done, and doesn’t suffer the “lagginess” inherent in Android’s design which may never be able to be rewritten and modernized. WP7 has a luxury feel to it.

So, how will WP7 feel when it’s loaded with a typical number of power-user apps? That remains to be seen.

In other words, can WP7 be as strong an “app phone” as iOS and Android? Or will it easily get bogged down and work best as a “built-in app feature phone”? If WP7 can’t become a strong “app phone” then power users will tend to stay away from it and it’s user base will be more those who don’t care about its dynamic range and just use it the way it comes out of the box for the most part.

This is another thing that would seem Microsoft is “late to the table” with. I’ve never owned a WP7 phone, but this design element (dynamic range) interests me greatly from a UI standpoint and I have yet to talk to anyone who can explain the “heavily loaded with apps” experience to me nor have I read any article that talks about what it’s like.

This would seem to potentially impact the “ecosystem” around WP7 and I would imagine impacts it’s perception, reputation, and it’s ability to compete with the big boys. I guess we’ll have to wait and see what actually happens here as it fights for what marketplace is remaining. However, I think having a strong third player will upset the “them vs. us” dynamic between iPhone and Android, and in a good way.

WFA

Would be interesting to see data on smartphone adoption superimposed on a Diffusion of Innovation graphic. Presumably, we are somewhere between Early Majority and Late majority, no?

Does it make sense to include WinMo with Windows Phone? They are not the part of the same platform or ecosystem and UI is completely different. They were developed by the same corporation and they both carry the name “Windows” as a prefix, but that is just marketing. Unfortunately, it may not change the overall theme though. Adding 10% of the number of users that iPhone is adding, which itself is growing at only half the rate of Android, will still make them compete with established platforms if the growth rate does not jump dramatically by the end of next year.

I wonder if a similar analysis had been done for web browsers. Did IE compete mainly against non-consumption or against Netscape user base?

http://www.asymco.com Horace Dediu

There is no doubt that IE competed against non-consumption. In its years as an independent company, Netscape managed to peak at about 50 million customers. The IE user base is probably well above one billion. In general, disruptive growth is almost always against non-consumption.

Tatil

Thanks

http://twitter.com/qka qka

Your second graph, US Installed Base, seems to imply that the installed base for ALL phones is constant. The top of the section for non-smart phones is perfectly horizontal. Is that correct? It would seem to me that the installed base of ALL mobile phones would be increasing, due to population growth, holdouts getting their first phone, changing demographics, etc.

http://www.asymco.com Horace Dediu

This is the data as comScore reports it.

Anonymous

its possible that in the saturated US market, the small number of new handset users being added (who previously did not own a handset) is being cancelled out by the amount of business users who are ditching their “2nd work phone” and using one primary handset instead for personal & work use (all those dissapearing blackberrys).

When Nokia announced that they were abandoning their own platform(s) and focusing on Windows Phone 7, many opined that Nokia would kick-start the Windows Phone 7 platform.

Much of this optimism seemed based on the idea that Microsoft would give Nokia some secret advantage that their other manufacturers didn’t have. Based on the phones that Nokia has introduced so far, that doesn’t appear to be the case.

The other advantage that Nokia was supposed to bring to Windows phone 7 was their brand and their distribution channels. Nokia still has their distribution channels, but I wonder if their brand has been tarnished by their recent failures.Since Windows Phone 7 has shown so little traction and if Nokia is simply one among many Windows Phone 7 manufacturers it seems possible that Windows Phone 7 may simply be another Microsoft Zune.

As an aside, the failures of the very late to market Zune and Windows Phone 7 does not bode well for the also very late to market Windows 8 Tablet.

http://www.asymco.com Horace Dediu

It’s still too early to call the impact of Nokia on Windows Phone. I think the two companies give themselves another year before they will draw conclusions. It takes a year to implement and a year to build a portfolio. We’re one year into the cycle so far. However, as the post points out, the market may not be the same in a year and there may not be time to react to market signals.

http://kaizenity.blogspot.com/ FalKirk

“It’s still too early to call the impact of Nokia on Windows Phone.”-Horace Dediu
You’re right of course. Much may change over the course of a year (or two). But knowing what I know today, I see nothing in the Nokia-Microsoft alliance that will make a jot of difference to the future of Windows Phone 7.

http://twitter.com/dbkahn Daniel Kahn

You’ve already outlined the problems for the U.S. and Europe, but another issue for Nokia is that even their developing markets are starting to crater. In particular, India and Africa are moving en masse to stripped down smart phones built by low cost Chinese manufacturers (mainly Huawei and ZTE) and running Android.

Keep in mind that pre-paid markets will only support the lowest cost entrant, since they don’t have carrier subsidies to fall back on…

Anonymous

The purchase cycle for phones is around 18 months. When the market is as larger as possible, every 18 months thereafter, OEM have the opportunity to steal some customers from another OEM. This means that WP7 will have an opportunity to make inroads if MS remains committed to improving the platform. I think they have made a fine start. The top level of the Metro interface looks awesome.

In order to sell it to me however, I will need to see it in action doing something useful to me. If it takes longer to do something or doesn’t do something smoothly they will have lost their chance for another 18 months while I use some other phone.

Anonymous

An OEM might have a chance to steal a sale but does a whole new
ecosystem? One may swap an HTC for a Samsung Android – easy, but
swapping for a Nokia WP7 phone is a totally different proposition. 18
months of apps, music, cloud usage, etc. is a high barrier to overcome
with a nice UI.

kevin

You’re assuming that users have fully engaged with the ecosystem (mainly apps, videos, & cloud usage, as music is easily moved). There is evidence that this might not really be so in the Android universe; app revenue across the various Android app stores looks relatively low per user; most of cloud usage is free (especially Google’s) and accessible via browser or apps in other ecosystems.

Walt French

“With 15.5 million subscribers, RIM has fewer users in the US today than it did in late 2009.”

Horace, in your recent appearance on the Mac Power Users podcast, you were credited with having called RIM a dead man walking back ~ 24 months ago — well before the Playbook fiasco and making partisans quite upset because customer growth was still strong.

I haven’t figured how to chase down that post in the archives and would be interested to know how much was a hunch (which you don’t seem to write much) versus a structured, but fairly data-light analysis versus something that seemed a lead-pipe cinch. I think a review of your methods and results would be helpful, especially when you tread into more passion-fueled pages such as BI’s.

Oh, while I’m offering somewhat narcissistic suggestions, how about an easily-quoted, maybe snappy credo somewhere on this site, somewhat similar to your podcast intro?

OpenMinde

For Windows Phone to compete, Microsoft needs to work on two fronts: carriers and OEMs. Carriers push Android ahead of iPhone. One important reason is that Android costs less than iPhone. iPhone net cost to carriers is about $400, Android net cost $150. For a $20 monthly plan (voice + data, no text), carriers get $600 in a two years, net $200 for an iPhone, $350 for an Android. If you walk into a carrier store, sales will tell you this Android, that Android, but they will not tell you about iPhone unless you ask for it. That is partial reason that Android has more market share than iPhone. Microsoft need to offer carrier incentive to push Window Phone ahead of Android, either by giving rebate to carriers, or other means. Also Microsoft need to help pay OEMs the cost of sub Android out with Windows Phone.

PJD

“Carriers push Android ahead of iPhone.”

OpenMinde is on to something here. Recently, when at a local mall with my wife, we poped into a Verizon Wireless store to upgrade my years-old feature phone to an iPhone 4s. Not surprisingly, they had none in stock. The Verizon salesman immediately went into Android-has-all-the-features-that-iOS-has-and-then-some mode. Being an Apple fan I was disgusted and angered by his reptilian attitude. But in fairness to the salesman the guy is just trying to make a living. I wonder what the percentages would be today sans Apple’s production constraints.

Joe

“Other” which includes Symbian and PalmOS…

Do you mean Other includes WebOS? Isn’t PalmOS already on the chart in red? Or is that WebOS?

http://www.asymco.com Horace Dediu

Freudian slip.

Davel

You say the market saturates in a year. I assume the European market has already done so. This means for Apple to grow in the western world they have to displace Android?

RobDK

Great article Horace!

It is clear that Apple and Google are driving for market adoption of smart phones as quickly as possible. With so many consuming, and a disappearing non-consumption proportion, it must be clear for the senior management of the 3 firms what is exactly happening. Basically, Microsoft have a year left to get about 30% maximum of this new market, otherwise they are shut out of this market development cycle going forward.

It is also obvious that similar movements are at work in the tablet/pc world. Here Apple is driving a development cycle which means that within a year or two, a large proportion of the developed world will be using Apple mobile products for their primary ‘computing’ needs and desires. If MS do not pull their finger out, they will be cut off from consumer exposure in these rapidly expanding markets, and will be relegated to being a business provider of IT solutions that nobody desires, but have to use at work.

I love this recent article from MS-supporter Paul Thurrot, who has actually written some very pro-Apple articles recently:

‘…and the company (Microsoft) splits the market for “mainstream computing devices” somewhat evenly with iOS and Android. If not, Microsoft is relegated to the truck market. Or what we might call the business PC market.’

Anonymous

Android 41.7m – why leave out its percentage share but include it for Iphone?

Iphone has 28% which is over 25m. So we get Android share at about 46.7%. Add both together we get 74.7% and 66.69m which tallies with

“Android and iPhone now make up nearly three quarters of all smartphone ownership in the US. That’s a total of 67 million users.”

Which makes the number of smartphone users about 89m

“144m non smartphone users = 61.5% thus total phone users = 234m”

the chart indicates that there has been no increase in the total number of phone users – highly unlikely when the total market for phones has increased.

“There are now over 25 million iPhone users (above age 13) in the US.”

Are you implying that there is a significant number of IOS users under 13? However the study only considers over 13 for its stats.

“At least 25 million new Android users will be gained and at least 10 million new iPhone users will be created in the next 12 months.”

Over the next 12 months Android will grow from 41.7m to 66.7m annual rate of 60%

Over the next 12 months Iphone will grow from 25m to 35m annual rate of 40%Currently Iphone and Android have 74.7% of 89m users of smartphones”Assuming some acceleration, it’s not hard to see 50% being claimed by the two entrenched incumbents”Wouldnt this be a deceleration? Now why are you saying the next 100m Iphone and Android will only take 50% when you say there are network effects for the 2 main ecosystems.

http://twitter.com/dbkahn Daniel Kahn

Good numbers, but I think Horace is talking about the total market for mobile phones (not just smart phones). He has Anroid+iOS passing 100 million users this year. Total market size is 234 million phones.

An acceleration in adoption could take the combined share to 118 million phones or >50% of all mobiles in the US!

Anonymous

If you read the below part again then 35m new Ios and Android users = 35% of 100m non smartphone users opporunity.

50% claimed of the next 100m.
Leaves 50m for Windows phone and the rest.The point he makes is that if out of the next 100m, 50m goes to ios and Android then that leaves 50m for Windows phone to capture.

“At least 25 million new Android users will be gained and at least 10 million new iPhone users will be created in the next 12 months. That’s 35% of remaining non-consumption. Assuming some acceleration, it’s not hard to see 50% being claimed by the two entrenched incumbents.

This leads to an interesting positioning question. Is Windows Phone destined to compete with consumption or non-consumption? If traction is not forthcoming in the next 12 months, that leaves a very difficult last 50 million available as non-consumers”.

If we take your numbers
50% of 234m = 117m.
Add in his estimates of 66.7m for Android in a years time and 35m for Iphone then we get 101.7m well short of the 117m.

BUT

The penetration should reach 50% before September 2012 with about 1.2% being converted every month

That 50% is for all smartphones not just Ios and Android it should include rim, wp etc.

“If traction is not forthcoming in the next 12 months, that leaves a very difficult last 50 million available as non-consumers.”
What you have done is split non consumption of 145m into
non consumption = 100m <— later to become consumers
non – non consumption = 50m <—- unlikely to consume

kevin

It does add up.

By sept 2012, smartphones (all brands) should pass 50% (over 117m) of all phones in US (13 and over).

By end of year (dec 2012), with a bit of acceleration, just iPhone and Android alone should pass 50% (117m) of all phones in US (13 and over).

http://www.asymco.com Horace Dediu

I prepared a chart (attached to this thread) to explain.

http://www.asymco.com Horace Dediu

I am using the data from comScore as linked in the first paragraph. They don’t obtain data for persons under 13 years of age. I presume because their surveys cannot be addressed to that age group due to privacy laws (see Children’s Online Privacy Protection Act of 1998). I’m not implying anything, however in the past, posts on this subject (list below) generated comments which pointed out that this exclusion exists, so I’m repeating it for the sake of completeness.

The total number of phone users is what comScore report. Do I doubt the total is constant? Sure, but I’m not going to suggest an alternative because I don’t have any way to do so with more precision than comScore. Nielsen has a separate survey which has different methodology and shows higher penetration but I’m sticking with comScore as I have a decent collection of their data and have been writing about that data for a while. The main value is in the patterns and rate of change not in the absolute values. The tipping point analysis (and S-curve) is independent of total number of users.

The 50% you quote refers to 50% of all phones. This post is one in a series where I discussed this threshold as a significant milestone.